Purpose – Kato & Long state that executive compensation has attracted much attention from economists in the past two decades yet most academic work on executive compensation has been concentrated on a few developed countries such as the USA and the UK, mainly due to data availability. In light of the mounting interest in the vital role that corporate governance may play in economic development, however, it is of considerable importance to study how firms in developing countries compensate their top executives. In particular, for transition economies struggling to transform their state-owned enterprises (SOEs) into profitable modern firms through various reform measures, the provision of efficient managerial incentives is a crucial ingredient of the successful transition of the economy. Since executive pay-performance link represents the bulk of managerial incentives for top management, a closer look at the nature of pay-performance link for top management in transitional economies will provide much needed information for the evaluation of the current reform effort and the designing of future reform measures. This paper seeks to address these issues.
Design/methodology/approach – A review of available literature for this topic was sourced, collated and summarised.
Findings – The significant pay-performance link for top management in China's listed firms is overall encouraging news for current policy makers in China, who consider public listing in the stock market as a key mechanism of achieving such a goal for large SOEs. However, not all news is good. Perhaps most importantly, they have found that government ownership of China's listed firms is weakening pay-performance link for top managers and thus possibly making China's listed firms less effective in solving the agency problem.
Originality/value – Taken in context with other literature and research, this paper provides an insight into the link between Chinese state-owned enterprises (SOEs) and other publicly listed firms and executive remuneration.